How to measure the success of your Vacation Rental Property?

How to measure the success of your vacation rental property?

If you have a vacation rental business set up, tracking its performance is equally important as attracting guests and increasing bookings. Vacation rental property KPIs are measurable aspects of your business that you can lean on to understand and analyze your business. It is a quantifiable lens into the depths of your vacation rental business.

From the occupancy rates to referrals your property is getting, it is essential to track these metrics as they can help you calculate your return on investment (ROI). You can then adjust your operations to maximize your profit. 

How Do Vacation Rental KPIs Help You?

When you accurately calculate your vacation rental KPIs, you can:

  1. Track the property’s performance
  2. Make informed decisions
  3. Quantify business goals
  4. Solve problems
  5. Identify, understand, and implement industry trends
  1. Revenue
  2. Occupancy rate
  3. Average length of stay
  4. Average daily rate (ADR)
  5. RevPAR
  6. Average Length of Stay (LOS)
  7. Average Booking Window

Revenue

You are hopefully getting into this business to make some money. The money that you get from bookings is what we’ll refer to as revenue. We can add monthly or annual or daily in front of revenue (e.g. monthly revenue) to denote the duration in which that revenue was collected.

Occupancy rate

Occupancy rate is the percentage of the total number of nights that have been rented over a specified period. Monthly or annual can be added in front of the occupancy rate to denote the duration over which the occupancy rate is calculated. 

On any given day, the occupancy rate for your vacation rental or single-family home can either be 0% (booked) or 100% (available).

How to calculate: 

Occupancy rate 

= (Number of nights booked / total available nights)*100

For example, suppose your vacation rental has been booked for 15 out of 30 days in a month. 

= 15 / 30 

= 50 % 

Available nights, in this case, can be a little tricky.

Each calendar day is classified as: 

  1. Available for reservations
  2. Booked  for someone, or it has been reserved
  3. Blocked when a vacation rental is not available for bookings (for example, maintenance period or owner blocks)

A vacation rental can be blocked for either personal reasons or for maintenance purposes by the host. When calculating occupancy rate, some people like to remove blocked days both the booked days and available days count.

Average Daily Rate

The average daily rate (ADR) is the average nightly price your vacation rental property gets for each booking. 

How to calculate? Divide the total revenue generated in a unit by the number of nights the unit was booked for. 

For example, 

You generated a revenue of about $1000 from a 10-day booking

The average daily rate would be:

= Total revenue / Number of nights booked 

= $1000 / 10

= $100

This is different from your actual nightly price because you might have had five nights priced at $50 and the remaining five nights priced at $150, which would make the 10-day booking to be $1000.

If you use dynamic pricing or are adjusting rates for your property, ADR will fluctuate constantly as the trends keep changing in the market. ADR helps you track the rate your guests will be ready to pay for any specific period to stay in your vacation rental property. 

Common reasons for fluctuation in ADR are:

  1. Seasonality 
  2. Event or high-demand days
  3. Other trends that cause volatility (COVID, War, Weather)

ADR is also helpful in benchmarking against your comp set to better understand the relative quality of your property.

Revenue per available room (RevPAR)

If you’ve calculated the above two metrics – Occupancy rate and ADR correctly, then RevPAR can be calculated by multiplying the two metrics.

While ADR helps you understand how much your property makes for any given night, RevPAR helps you understand your property’s ability to fill nights at ADR. RevPAR allows you to account both for the occupancy rate and ADR simultaneously. This is much more powerful than looking at those metrics alone. You could have a high ADR and low occupancy. Or a low ADR and high occupancy. Both of these signify poor performance. When your RevPAR is trending up, you’ll realize your performance is improving.

How to calculate? It is calculated by dividing your total revenue by the number of available listings or by multiplying the occupancy rate and average daily rate. 

For example, 

Your available night for the specified period – 30 

Booked nights – 15

Your total revenue for the month is $ 2000 over a span of 30 available nights. 

RevPAR would be: 

= total revenue / no. of available listings or occupancy rate x ADR

= 2000 / 30 

= $ 66.6

Once you start tracking RevPAR, you can start making data-based decisions such as:

  1. Lowering your daily rate to ensure more bookings (also known as prioritizing “heads in beds”)
  2. Maintaining a higher daily rate to result in less wear-and-tear on the property

There seems to be some confusion between ADR and RevPAR. Let’s clear the air today. ADR refers to the average price of the rentals booked per day. RevPAR refers to the revenue per available room per day, month, or year. It is important to note that unless your property is 100% booked, the RevPAR number will be below ADR.

For example, 

If you have 50 available nights and only 20 booked. 

Your occupancy rate would be: 

= Number of nights booked / available nights

= 20/50

= 40% 

Let’s say you made $ 4000 over the 20 nights. 

Average daily rate would be:

= total revenue / no. of nights booked 

= 4000 / 20 

= 200

RevPAR would be: 

= total revenue / no. of available listings

= 4000 / 50

= 80

In an ideal scenario, you should be booked through the month, and your ADR will equal the RevPAR. It is more likely that it will vary as your bookings vary. 

RevPAR is an important vacation rental KPI because this helps property owners or managers to measure the overall success of the vacation rental property. 

While RevPAR measures the revenue, it is not an indication of your property’s financial health. Financial health is your property’s ability to turn revenue into profit. RevPAR tracks the money coming into your property while turning a blind eye to the associated costs like commissions, utilities, supplies, labor, etc. While RevPAR is an important KPI to track, it is still restricted.

Average Length of Stay (ALOS)

Length of stay (LOS) refers to the number of days guests stay during a reservation. The average length of stay refers to the average number of nights guests stay at your property.

This is a vital vacation rental KPI to track because an increase in short-term stays can increase maintenance and operation costs in your vacation rental property. 

How to calculate? It is calculated by dividing the total number of booked nights by the number of stays in a property during a specified time period. 

For example, say you have 6 bookings this month.

Booking 1 2 nights
Booking 25 nights
Booking 34 nights
Booking 43 nights
Booking 51 night
Booking 62 nights

Total number of nights booked – 17 nights

ALOS

= No. of nights booked / no. of different bookings

= 17 / 6

= 2.83 nights

The average length of stay metric can directly impact your net operating income. 

Along with LOS, you’ll hear about minimum LOS or minimum stay restrictions. This is essentially the minimum number of nights for which a guest can book your property. You might not always want a guest to book single-night stays. In these cases, you can create restrictions that drive only those bookings that are coming for longer stays or mid-term stays as per your convenience. 

Using our dynamic stay restrictions customization, you can not only automate the stay restriction setting process but overall drive up the ALOS for your property!

Average Booking Window

The booking window (or booking lead time) is the count of days between the date when a booking was made and the actual check-in date for that booking. 

Understanding your booking window can help you adjust and optimize your pricing and stay restrictions better. 

The myth of 100% occupancy

Achieving 100% occupancy is a puzzle many property owners and managers face. It might not actually be a good thing. Why? 

Because: 

  1. The more it is booked, the more it is used. Hence, the wear and tear increases leading to increased maintenance. 
  2. A high occupancy rate might also mean that you are underpricing your property. It might be time to revisit your pricing strategy. 

So, is a high occupancy rate not ideal? Is a high average daily rate ideal? Let’s see. 

In most markets, as your average daily rate increases, your occupancy rate would decrease. There are, of course, exceptions – for example, a unique property or service. 

This is where RevPAR becomes the vital metric.

Let’s look at an example (little math):

Occupancy rate – 70%

Average Daily Rate – $ 450

RevPAR – 70% x 450 

   –  $ 315

Revenue for a year – $ 315 x 365

         – $114,975

Let’s increase the average daily rate a little, shall we? 

Occupancy rate – 70%

Average Daily Rate – $ 480

RevPAR – 70% x 480

–  $ 336

Revenue for a year – $ 336 x 365

– $ 1,19,616

The difference in profit is  $ 4641. 

Analyzing RevPAR has given a way to increase profits.

Keeping track of all vacation rental KPIs is vital for property managers and owners to scale your business quickly and easily. After all, keeping track of these numbers in an excel sheet is tedious. 

This is where a service like Pricelabs portfolio Analytics comes in. We track everything for you in real-time, providing you with useful insights in one platform.

Keeping track of all vacation rental KPIs is vital for property managers and owners to scale your business quickly and easily. After all, keeping track of these numbers in an excel sheet is tedious. This is where a service like Pricelabs portfolio Analytics comes in. We track everything for you in real-time, providing you with useful insights in one platform.

Pricelabs Portfolio Analytics, you can have a real-time reporting system that tracks high-level vacation rental KPIs and metrics for your property. You can get a quick snapshot of your property’s financial health. We dive further in and provide insights on listing level performance and metrics. You can use our data to make informed decisions while setting up your pricing strategy

With Portfolio Analytics and Market dashboard, compare your property with others in your neighborhood. PriceLabs dynamic pricing solutions can help you get pricing recommendations based on historical and current booking data, market supply and demand, seasonal and day-of-week trends, special events and holiday predictions, and days left to book.

While these are not the only vacation rental KPIs, you need to track them to optimize your pricing strategy. These will hopefully help you in making informed decisions. Revenue management implies setting the right prices; this can mean everything and nothing for your vacation rental. PriceLabs constantly studies the market to find the point at which supply and demand are met. 

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